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It's a Marathon Not a Sprint for This Under-the-Radar Energy Company

While ExxonMobil and Chevron get most of the attention, smaller upstream major Marathon Oil is out-performing them both on some crucial measures.

When individual investors consider buying stock of an oil company, the integrated super-majors like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) instinctively come to mind first. This stands to reason, of course, since both are some of the biggest companies in existence. And, when it comes to global energy companies, ExxonMobil and Chevron get most of the attention from the analyst community and financial media.

However, for Foolish investors willing to dig deeper wells among oil and gas companies, a better alternative may exist in the form of Marathon Oil (NYSE:MRO). Unlike ExxonMobil and Chevron, Marathon is a pure-play upstream exploration and production company. While its much larger competitors grapple with disappointing production and downstream units that are proving to be a very painful business right now, Marathon is firing on all cylinders thanks to its sharp focus on profitable resource acquisition and development.

Performance superior to the integrated giantsThere's no denying that the global integrated super-majors performed poorly in 2013. ExxonMobil's results last year look bad. Profits clocked in at $32.5 billion, a 27% drop from the prior year. Oil equivalent production fell 1.5%, and downstream performance was even worse. Ditto for Chevron, which posted an 18% drop in earnings last year. It suffered from field declines and disappointing project ramp-ups just as ExxonMobil did, as its worldwide net oil-equivalent average production fell by slightly more than 3% in the fourth quarter.

In stark contrast, Marathon Oil performed much better than its two bigger brothers. It's proving to be a nimbler operator than its much larger rivals. Marathon Oil grew net income by nearly 11% last year, driven by 11% growth in net production, excluding its Libyan division. The integrated super-majors are so large, they're finding it difficult to locate and pursue sizable enough opportunities that move the needle in a meaningful way.

Marathon fully expects strong production growth to continue this year, as a result of its continued drilling activity in the first quarter. It accelerated drilling at its premier domestic oil fields including the Eagle Ford and Bakken fields, where Marathon has ramped up to a 28-rig program. This drives the company's full-year expectations, which are to produce 420,000 barrels of oil equivalents per day. That would represent a 3% increase this year.

Reserves replacement leads the packAmong the super-majors, ExxonMobil usually gets all the credit for having an industry-leading reserves replacement ratio. This is a measure that shows the amount of proved reserves added to an oil and gas company versus the amount of oil and gas produced. Last year, ExxonMobil generated 103% reserves replacement, 76% of which were liquids. This represented the 20th consecutive year of a reserves replacement ratio greater than 100%.

ExxonMobil handily beats its close peer Chevron in terms of reserves replacement. Chevronposted a sub-100% reserve replacement level last year. Looking back further, ExxonMobil has made a habit of outperforming its industry on this measure. ExxonMobil's reserve replacement from 2009-2013 is significantly above 100%, and stands well above Chevron's, which just hits 100%.

Still, both of these companies don't measure up to smaller player Marathon, which generated a 194% proved reserves replacement ratio last year, excluding asset dispositions. Management attributes its success to a sharp focus on quality resource capture. The huge integrated companies don't enjoy this luxury, as they're busily trying to manage their downstream segments through the horrible environment for refining they're currently stuck in.

Don't overlook Marathon OilWhile most investors focus on the global super-majors like ExxonMobil and Chevron, smaller upstream major Marathon Oil may be more deserving of your attention. While ExxonMobil and Chevron find it difficult to get production growth going, due to disappointing project returns and field declines, Marathon Oil carries a sharp focus on exploration and production that is really paying off.

And, while the integrated giants continue to be weighed down by extremely poor refining, Marathon's status as a pure-play upstream operator shields it from downstream headwinds. Marathon's success is evident in its extremely strong growth in production, proved reserves, and profits last year, and continued drilling should make 2014 an equally successful year.

Author

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.